Standing in front of a group of local Chinese TV and radio reporters earlier this year, Arcadia City Councilman John Wuo spoke about an investment opportunity called Gemcoin, a digital currency in the vein of bitcoin. He said it was a “breakthrough in finance.”
“This is cutting edge,” said Wuo, flanked by Gemcoin executives. “This has great potential for our economy.”
At another appearance in May, Wuo took the stage at a conference in Los Angeles and lavished praise on Steve Chen, the founder of the company launching the currency, calling him “one of the quickest thinkers” he had ever known.
Now Wuo is seeking to distance himself from the company and his own words as a group of Gemcoin holders complain that their investments are worthless and that the only revenue comes from new investors’ money.
“I haven’t done anything. I don’t have any association with them,” Wuo said, referring to Gemcoin.
Wuo said he has asked the company to remove his image from its promotional materials, adding that the Arcadia-based firm, U.S. Fine Investment Arts Inc., used his image without permission. The speeches he gave on behalf of the company were just a few of the hundreds of ceremonial appearances he made as then-mayor, he said.
The FBI is now investigating the claims of investors, according to documents reviewed by The Times. At least one disgruntled investor said he has been interviewed by federal agents, and others have received letters from the bureau alerting them that they might be victims of a securities fraud.
Some Arcadia residents have criticized Wuo’s speeches on behalf of Gemcoin, claiming that he has misused his title to help the business. Wuo’s political opponents have seized upon his speeches as a way to drum up support for a possible recall effort.
Experts say politicians often face a balancing act when it comes to local businesses. Promoting these businesses is part of every politician’s job, said Robert Stern, former president of the nonpartisan nonprofit Center for Governmental Studies. But it’s important to have the right motives, he added.
“The question is, are [elected officials] doing it for the benefit of the city or the benefit of the company?” Stern said.
USFIA executives described Gemcoin as a rewards system comparable to frequent flier miles. The company sells packages of actual gems, then awards Gemcoins based on how much is purchased, Andy Beal, corporate counsel for USFIA, said in an email. Customers earn money by selling the gems and recruiting people to become sellers.
The rewards system will be converted to a cryptocurrency, or digital currency, by the end of the year, Beal said. At the moment, Gemcoins can be redeemed only for “company products and services,” he said.
Claims by Gemcoin critics are unfounded, Beal said.
Several websites and social media accounts using the company’s name say the currency has been in circulation for a year. One website, www.gemcoin.ch, which includes a Gemcoin-to-dollar currency converter, claims that the currency’s value has increased more than 500% since 2014.
Investors, prompted by a multinational campaign of promotional videos, presentations and conferences, have signed up, lured by promises of huge returns.
Michael Liu said he, members of his family and friends invested $350,000 in USFIA in 2013. Back then, USFIA’s product, and the company, went by different Chinese names.
He said the company’s promotional material posted online satisfied him that the investment was sound. USFIA’s parent company, Alliance Financial Group, claimed to have $50 billion in assets, 2,000 employees, 2 million members and rights to a profitable amber mine in the Dominican Republic.
A Gemcoin website said that Alliance had signed an agreement with the U.S. Treasury Department to regulate Gemcoin. Liu said he was also shown an endorsement letter that the company claimed was personally signed by Chinese President Xi Jinping. One of Chen’s companies, the U.S. China Consultation Assn., was represented in a brochure as a cooperative effort between the Chinese and U.S. governments to improve business relationships.
Liu said Wuo’s purported endorsement was particularly reassuring.
“They said he was an honest person, and that I could trust him,” Liu said.
After a few months, when his investments failed to generate the promised profits, Liu said, he worried. Earlier this year, Liu tried to get his money back. He said he was banned from the company’s offices after complaining to employees there. On Thursday, Liu and a group of investors held a news conference asserting that their Gemcoin investments are now worthless. They said they represent a group of more than 50 disgruntled investors who allegedly lost money. Another investor, Jason Ning, filed a complaint with the Arcadia Police Department claiming that USFIA employees made threats on his life. A company executive disputed Ning’s claims and said no threats were made.
Beal said that the company does not have any official U.S. or Chinese government endorsements, and that Wuo had no official role in the company, beyond being Chen’s personal friend.
On a recent weekday, the office’s entrance was framed by multicolored flags emblazoned with Gemcoin’s logo. In the lobby, two ATMs also bearing the logo appeared to allow investors to change their dollars into Gemcoins. The company’s website says that it has 2,500 such ATM’s ready for money transfers across the world.
Gemcoin packages begin at $1,000 and go up to $30,000, according to the website. Investors get daily, weekly and monthly bonuses that increase as they recruit other investors and purchase more Gemcoins, according to a presentation on the website.
The most successful recruiters are promised generous prizes: vacations, BMWs, Mercedes-Benzes and even a mansion, according to marketing materials reviewed by The Times. At the highest level, the company offers to qualify investors for an EB-5 investor visa, which offers foreign nationals a visa and a path to citizenship in exchange for a $500,000 or $1 million investment in a U.S. enterprise that creates at least 10 jobs.
Wuo maintains that he has nothing to do with Gemcoin or any of Chen’s businesses, and said he was not paid for any of his appearances. He said the attempts to link him with Gemcoin come from a group of residents disgruntled over mansionization.
Incorporation records filed with the California secretary of state list Wuo as a onetime partner in a company called 24 HD Surveillance, which shares a business address with USFIA Inc. and several other companies associated with Chen. USFIA executives say 24 HD Surveillance was a former tenant of the building.
The company sold home and office security camera systems, Wuo said. He added that he was not involved with the company and said his name was listed on the company’s incorporation records without his permission.
As for Gemcoin, Wuo said he made appearances for the company because he was trying to support local businesses. People investing in the currency should do their own research, he said.
“I don’t know anything about Gemcoin,” Wuo said.